Demand For ESPs To Rise With Weak Economy, Warrantors Say
By Alan Wolf -- TWICE, 9/29/2008
NEW YORK — While CE sales appear to be holding up amid the tough economic climate, shoppers are clearly tightening their purse strings. Will the consumer clampdown extend to extended-service contracts, or will buyers be even more inclined to protect their investments during these uncertain times by attaching a warranty to their CE or majap purchase?
TWICE put the question to the industry's leading extended-service providers (ESPs). Here's what they had to say.
Joseph Saieda, chairman, RepairTech: With the downturn of the economy, there is no question that merchants are going to have to be more creative in tempting their prospective customers to purchase the consumer electronics products that they are offering.
Similarly, strategies will have to be sharpened in order to sell an acceptable number of extended-service contracts, which continue to be the most profitable accessory the consumer electronics dealers have to offer their customers.
With this in mind, it would make sense that the discounted price on, say, an LCD TV that is being heavily promoted to gain interest from the customer, will allow the attached warranty that is offered to cover this product to fall into a less-expensive price tier.
For example, if an LCD TV that regularly sells at $1,999 is promoted at 25 percent off the regular retail during the holiday season, then the retailer is looking to sell this product to their customer at a cost of $1,499.25.
This reduced selling price will now fall into a different price tier for the customer that will save the dealer a minimum of $39 to purchase either a three-year or a five-year extended-service contract [ESC] from RepairTech.
It will be up to the dealer to make a judgment to rethink the markup of the service contract he is selling his customer.
The message here is that during difficult economic times, everyone should be looking to work closer and narrow their margins in order to maximize their sales opportunities. Thus, if a retailer is used to marking up their service contract cost three times during good times, perhaps they should narrow their margin multiplier to 2 to 2.25 times during the upcoming holiday retail season. It is common sense that a little bit of profit is better than no profit at all.
Bruce Saulnier, president, AMT Warranty: We feel that Q4 will present significant opportunities in the CE space given recent technological innovations, but consumers will be seeking value-driven purchases during these difficult economic times.
AMT Warranty's focus has been, and remains, on providing the very best face-to-face and Web-based education and training to the sales associate on the floor, telephone or computer. We believe that sales tools, knowledge and confidence, when coupled with additional value beyond the ESP itself, will enhance the sales associate's ability to convert the consumer on the extended-warranty purchase.
By working with AMT Warranty in the future, retailers will be the beneficiary of both best-in-class ESP sales training and a value-added service tied to the warranty purchase. We believe AMT Warranty will be establishing a new precedence by offering additional value to consumers who purchase extended warranties, with the first new value-added service set to launch in the fourth quarter for participating retailers.
More details will be announced as these programs are finalized, but we're excited about the impact these value-added offers can have for our retail partners. Our research suggests that once the consumer considering a warranty purchase is presented with additional value beyond the warranty itself, the consumer decision-making is more likely to tip in favor of the warranty purchase, driving up attachment rates and profits for retailers. The value-added service, when combined with ESP knowledge, sales confidence and sales incentive programs (or “spiffs”), will contribute to enhanced attachment rates in the future.
Neal Bobrick, sales senior VP, Warrantech: Tightened purse strings should make selling extended-service plans a little easier for most retailers. As customers find it a bit harder to part with their hard-earned money, they want to ensure protection for their major electronics purchases.
The key to selling service plans has moved away from “scaring the customer” into buying warranties because of high service costs and into selling all of the features and benefits the plan offers. Salespeople should work to maximize every opportunity by focusing on the plan's additional features such as power-surge protection, no-lemon guarantees, and repair or replace programs. By encouraging the floor to sell everything the plan offers along with the break/fix benefit, the outcome will be higher profits for the retailer in addition to providing better service — all of which results in a happier, more satisfied customer.
Focusing the floor on increasing lines per ticket (any add-on including service plans) through pay, incentives or job performance is critical to profitability this holiday season. Many times the “all-you-can-eat buffet” is the reason salespeople don't take the time to maximize opportunities during the holiday season. This year, they may not have a choice. The traffic will be there and sales will be made, but in the competitive market we know this holiday season will bring, will the profit be there? Retailers can do much to ensure the profit is there — as long as the floors are directed appropriately.
Kevin Rupkey, president/CEO, Bankers Warranty Group: We remain optimistic that extended-warranty sales will remain strong in the fourth quarter. With concerns about the economy looming, many retailers have put particularly strong emphasis on extended warranties. They are conducting special sales training for staff in their stores and will focus on increasing attachment rates to offset any decline in product sales revenue.
Most retailers should continue to attach well on flat-panel TVs, which is a category that is expected to remain strong for the rest of the year. From the consumer's standpoint, now may be the right time to protect themselves from unexpected repairs. Concerns that they may not be able to afford to fix the product if it breaks after the manufacturer warranty expires could help fuel extended-warranty sales.
Chris Smith, president, Service Net: We haven't adjusted any of our projections based on the current economic conditions. If we look at the history of our service-agreement sales through the ups and downs in the economy, we don't see big swings one way or the other. For the most part, ESPs are somewhat resilient to the economic conditions insomuch that when times are tough, people take the extra step to protect the investment they just made in a product purchase. When times are great, they have the extra financial latitude to buy the extended protection.
Another important thing to consider is that most “warranty buyers” don't change their minds on their protection philosophy and the value that ESPs bring based on economic conditions.
The same principles and keys to success that we focus on every day still hold true, no matter the economic conditions. When it comes to our retail, value-added reseller and even manufacturer-direct accounts, it's pretty simple — ask every time. We build relevant, value-add and feature-rich programs as the base and add to it great customer service and training programs. Combine this with client management, culture buy-in and accountability, and you have a recipe for success.
Part of our training plan focuses on increased activity this time of year and while the economy won't be a huge factor to ESP providers — it can be for our clients. This is why the focus on ESP sales is so important during the fourth quarter. Price competition among our clients this time of year, combined with the economy, is going to shrink our clients' product margins at retail as usual. Unit sales may increase, but the margins continue to shrink. That is why ESP sales are so valuable — not only for the customer in these economic conditions, but to our clients to regain lost margins and revenues. Now more than ever it is important for our clients to “ask every time” and ensure that the culture surrounding the need for ESP sales as a margin builder and customer satisfaction tool are adopted and pushed through their sales organizations.
Michael Frosch, president, North America consumer products division, The Warranty Group: It is not uncommon to see very strong attachment rates during tough economic times. When finances are tight and consumers make a sizeable purchase for their homes, they can ill afford a product failure. With these [warranty] products they are protecting themselves against catastrophic failure.
We're also taking different approaches to the business by customizing products based on distribution. For example, we've developed a product for custom installers that covers the removal, repair and re-installation of a wall-mounted TV that can be billed to a credit card. This is a brand-new product for us that's out there now and that's not covered under the manufacturer's warranty. The growing complexity of CE, from home theater installations to computer networks, is driving change.
Keith Meier, senior VP/general manager, Assurant Solutions Extended-Service Contracts: With consumers tightening their purse strings as a result of the challenging economy, the need to protect purchases becomes even more important to the average shopper. Consumers will feel that they have to safeguard the investments they've made in these items since repair costs can be extremely expensive and replacing the item altogether may not be feasible for many purchasers.
Extended-service plans are strongly encouraged during times like these as they are far less expensive than repairing or replacing consumer electronics and appliance purchases.
Joe Romano, client development senior VP, NEW Customer Service Companies: In tough economic times, consumers look for ways to maximize the value of their dollars — particularly when it comes to discretionary purchases. Once they have made the decision to purchase a product, especially a major one, they usually plan to keep it longer than ever before. Because extended-service plans protect the investment consumers make, they are often viewed as more attractive during tough times — giving them a way to extend their protection and shelter them from repair and replacement costs.
The golden rule in extended-service plan sales is simple: Ask every customer, every time. In a nutshell, it's the single most important thing a retailer can do to drive attachment rates. And while it sounds easy enough to do, during the holiday season the ask rate usually falls off, which often leads to a slip in attach rate that is readily made up for by volume.
We work with our retailers to buck this trend. We keep them focused on ask rate and ensure that they are tracking and communicating service-plan sales to store managers and associates daily, while helping them recognize and reward associates for both plan sales and the right behaviors. We also make it easy for them to train seasonal associates and make in-store materials visible, benefit driven, and within easy reach of both associates and customers.
No related content found.
VIEW ALL GALLERIES